A.M. Best has released a briefing exploring the recent wave of merger and acquisition (M&A) activity in the global reinsurance industry and how it reflects on reinsurance companies’ “desire for scale to maintain relevance amid challenging market conditions.”
Briefing, titled, “Global Reinsurers: M&A – A Strategy or Ultimatum?” indicates that Best “expects M&A activity to continue in 2015 as competition intensifies and returns continue to decline.
“Stock price-action for the top U.S.-traded reinsurers delivered less than exciting returns in 2014, up 6.5 percent, with a few companies seeing their stock price decline for the year versus the market total return of 11.4 percent. With current market conditions of double-digit price declines, increasing commissions and lower premiums, as well as the increased competition, the need for M&A is becoming clearer.”
In addition Best’s report points out that “as cedents increasingly seek companies that have a wide product offering and a strong market presence, Best believes reinsurers that are able to move in and out of various business classes and geographies as market conditions dictate will have a first-mover advantage for possible suitable alternatives that will allow for the development of more efficient, focused and diversified companies.”
As a result Best said it “anticipates those companies will likely see the majority of the deals in the market. With each deal, the reach for relevance becomes even more competitive.”
Best also noted that “size alone is not a substitute for an organization’s overall discipline, conscientious and proactive risk management, underwriting, and focus on emerging risks that could impact the company’s financial strength. Underwriting discipline and anticipation of possible market risks allow companies to remain prosperous and possibly ahead of market conditions.”
Source: A.M. Best